An independent sponsor raising equity for one acquisition is not running a fund and does not need fund-style documentation — but the money still has to arrive through a specific, named exemption under National Instrument 45-106, chosen to fit a single-purpose vehicle rather than a pooled one.
Key takeaways
An acquisition company raising equity for one deal is, in securities-law terms, an issuer distributing securities without a prospectus, and it needs a specific exemption under National Instrument 45-106 to do that lawfully. The accredited-investor test (s. 1.1) is the broadest and best-known route — an individual with over $1,000,000 in net financial assets, or $200,000/$300,000 of qualifying income, or a non-individual with at least $5,000,000 of net assets — but it is not the only one built for a single acquisition, and two narrower exemptions fit a one-deal vehicle particularly well.
NI 45-106 s. 2.10 is available where four conditions are all met: the purchaser is not an individual; it purchases as principal, not on behalf of someone else; the security has an acquisition cost of not less than $150,000, paid in cash at the time of the distribution; and the distribution is of a security of a single issuer. This is a close structural match for a single acquisition vehicle raising from a holding company, a family office, or another corporate investor writing one substantial cheque — it does not require the investor to clear any net-worth or income test at all, only the size and structure of this specific investment. The instrument's own anti-avoidance provision blocks an entity created or used solely to rely on this exemption, so it is not a route for splitting one investor's money across several shell entities to manufacture eligibility.
NI 45-106 s. 2.12 covers a different shape of the same problem: no prospectus is required where an issuer distributes a security of its own issue as consideration for acquiring the assets of the person receiving it, provided those assets have a fair value of not less than $150,000. This is the exemption that fits a seller rolling business assets directly into the buyer's acquisition vehicle in exchange for shares in it, rather than being paid entirely in cash — a structure independent sponsors use specifically to keep a seller's incentives aligned with the business post-closing. A parallel exemption, s. 2.11, covers the equivalent situation arising from a statutory amalgamation, merger, reorganization or arrangement.
Whichever specific exemption applies to each investor, most single-acquisition vehicles also qualify as a private issuer under NI 45-106 s. 2.4: not a reporting issuer or an investment fund; securities subject to transfer restrictions in the constating documents or a security-holders’ agreement; and beneficially owned by not more than 50 persons, not counting employees. A newly incorporated acquisition company raising from three or four outside investors alongside the sponsor is almost always well inside that 50-holder limit on its own — the constraint becomes real only for a sponsor running several parallel raises into related entities, or building toward something closer to a fund structure than a single deal.
Market data on Canadian acquisition capital structures puts typical buyer equity at roughly 25% of price on a sub-$1,000,000 deal, around 30% on a $1,000,000–$5,000,000 deal, and 35–45% at the $5,000,000–$30,000,000 mid-market band, where the equity is more often a sponsor or outside-investor contribution than personal savings alone. That band sets the practical floor for why a sponsor raises outside equity at all: below it, a lender's own debt-service test may not leave room for a smaller equity cheque to cover the gap, and above it, the absolute dollar amount needed usually exceeds what a sponsor can or should fund personally. See the CSBFP glossary entry for the financing constraints that sit alongside whatever equity is raised, particularly the rule that the programme cannot finance a share purchase — a structural fact that shapes how the outside-equity investment itself has to be documented if CSBFP debt is also part of the stack.
An independent sponsor is acquiring a specialty packaging business for $2,600,000. At the roughly 30% equity level typical of a deal this size, the sponsor needs about $780,000 in equity, well beyond what personal savings can cover. A regional family office agrees to fund $650,000 as a single cash investment, and the sponsor personally funds the remaining $130,000.
Because the family office is not an individual, is purchasing as principal, and its $650,000 investment clears the $150,000 floor into this single issuer, the raise relies on NI 45-106 s. 2.10 — the minimum-amount exemption — rather than requiring the family office to document itself as an accredited investor, which it likely is in any case but which is not the test this exemption asks for. The acquisition company itself qualifies as a private issuer under s. 2.4: two security holders, well under the 50-holder cap, with transfer restrictions written into the shareholders' agreement. No commission is paid to either the sponsor or any officer of the acquisition company in connection with the family office's investment, so s. 2.5's ban on insider commissions, which would apply if this had instead been a family-and-friends raise, is not even engaged here — a different exemption, a different set of constraints.
No. NI 45-106 s. 2.10 has its own separate conditions — non-individual, purchasing as principal, at least $150,000 cash into a single issuer — and does not require the investor to independently clear the accredited-investor tests as well.
The instrument's own anti-avoidance rule blocks an entity created or used solely to rely on this exemption, which is aimed at exactly that kind of structuring. A genuine holding company or family office investing its own money is a different situation from a vehicle assembled purely to manufacture eligibility.
They answer different questions and often apply together. The prospectus exemption (such as s. 2.10 or the accredited-investor test) permits the specific distribution; the private-issuer definition in s. 2.4 is a separate status the issuer itself needs to maintain, including the 50-holder cap and transfer restrictions.
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